Hi welcome to rfuk,
I am suprised you haven't had any replys yet I seen your post in the lizard section, there are some really good water dragon keepers on here it just seems none have been around to give you some info so il give it a shot but I am tired it is late lol so might be sluggish and some things might not make sense and if they don't I am sorry LOL., with regards to the size of the enclosure, I personally feel it is a subjective matter, I keep my own water dragon in an AX48" viv, they receive regular (out of the viv time) so I disagree with 6ft or whatever being a minimum requirement, saying that if you can offer bigger that is always better but the same can be said for any other animal, but definately not a minimum requirement.
To answer your question though yes I think that could work, it sounds great!
A 3ft fish tank would be great for them to swim and bathe in, a 3d background would be awesome, I done a fake rock background on my own enclosure, but I used expanding foam, paint and varnish, (well I haven't used the varnish yet it still isn't finished) I intend to varnish some eco earth onto the back of the fake rock to give a more natural effect and it will also help to hold in humidity.
Mercury vapour lamps are fantastic for tall enclosures, but when choosing your lighting here are some things to consider, water dragons require a humid tropical enviroment, these bulbs get exceedingly hot and more often than not don't do too well in them, there has been reports of them blowing, and so for the cost of those bulbs it isn't something I would be investing in for a water dragon viv, also the reptile is forced to choose between heat and UV, it can't move to a cooler point and still UV regulate, the new t5 lighting system made by arcadia are great, if combined with a reflector they are just as if not as powerful as an MVB and this will allow your water dragon to UV regulate and thermoregulate at once, by all means I can see the potential of an MVB but the humidity raises concerns for me using them bulbs, I would place the tube if you go down that route at the top of the enclosure, this is what they do naturally they climb to the highest points to get the best of the suns rays and move further down away from it into shadey areas when they don't want it, your water dragon is the real expert
your job is just to provide it and he will choose the rest.
Disinfecting branches? this is something I share a different opinion on from other keepers regarding tree dwelling lizards, especially when it comes down to stripping them, they are evolved and perfectly equiped to climb trees without any additional treatment, I might bathe and soak them before placing them into the enclosure, but I find it very unlikley your dragon will pick anything up from an outside tree branch, hazel, oak, etc etc.
Infact I will be adding in some more branches to my own with jungle vine etc just for more climbing options.
about the background though here is a pic of mine, it isn't finished yet, still needs the soil, varnished on and substrate added and sealed.
I hope that helps you a little.
Best of luck.